What is the full form of MPS?
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What is the full form of MPS?
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Marginal Propensity to save (MPS) is defined as the change due to one unit change in income. It is the ratio of change in saving(ΔS) to the change in income (ΔY) i.e.,MPS= ΔS/ΔY
It is generally the fraction of an increased income that is considered to be only saved .
For instance :
If the national income increases from Rs.1000 to Rs. 2000 and hence the saving too increases from Rs. 200 to Rs. 500
Therefore
Change in saving (ΔS)=Rs. (500-200)
= Rs. 300
Change in income (ΔY)= Rs. (2000-1000) = Rs. 1000
MPS= ΔS/ΔY
= 300/1000 = 0.3
A rupee change in income leads to change in saving level by 30 paisa.
The MPS is measured by the gradiant or slope of the saving curve .
The value of MPS also lies between zero and one (i.e. 0 < MPS < 1)
It is also very important to remember that MPS can never be negative. This is simply because of the positive relationship between S and Y.
It also have a vital role to play in Keynesian theory...
As it quantify the saving income relation and reflect the fundamental psychological law.
It has a close relationship with investment multiplier
K=1/MPS.
